Your View: Tax plan is killing the goose that lays the golden eggs

The goose that lays those golden eggs, she’s already hurting. The new tax bill of 2017 will further lame that badly wounded goose that made America great.

What is that golden goose? From the mid 1940’s to the late 1970’s, when America rose from a me-too nation to an unrivaled world leader, the fuel that propelled that American exceptionalism was the consumer.

Those people that liked to buy stuff, they made America great. Any stuff. Way too many shoes, knick-knacks, bicycles, cheap meals, expensive meals, shiny rims for rusty cars, shiny cars and small houses, fancy yachts and extravagant houses, hula-hoops and black and white televisions, Victrolas and transistor radios, stuff in the form of more education and travel, good stuff, bad stuff, it didn’t matter then, it still doesn’t matter; when people spend on any stuff, America prospers.

During those post-war years, there was a balance between government and business. World War II gave government a rationale to place very high taxes on excess profits. Very high earners were taxed to the max. In 1950 the highest tax rate was 90 percent. It didn’t benefit companies to hold back wages of rank and file workers to pad a CEO’s bonus or the bottom line, so wages for workers flourished. Wage earners spent and drove commerce to new heights. And America invested tax dollars in itself and became the marvel of the world.

Money is like a battery: when it is connected, it creates energy; when it sits on a shelf, ain’t nothing gonna happen. Think of it like this; when there is a $100 million lottery: say, if one person from New Bedford wins, that city won’t be affected much. Some contractor might get to build a new mansion, a few car dealers might get some extra action, but it will be very limited. Most of that $100 million will sit on a shelf or in some mutual fund that is divided among hundreds of companies around the world.

Now, if 10,000 people each won a $10,000 share of that lottery; restaurants, hair dressers, auto repair shops, manicurists, gun shops, jewelry stores, local malls, local charities, they would all the benefit. Houses would get noticeable improvements … the New Bedford economy would be on fire. That money would circulate locally and create new opportunities for local artists, chefs, musicians, carpenters, mechanics, contractors, artisans: that city and the surrounding area would fly.

America became great when workers earned enough to not only pay for food and shelter, but enough to get accustomed to all that not-so-necessary stuff. When they decided that they wanted more, more businesses found more creative ways to give them more. The United States had come close to finding that elusive balance between business and government. We became the land of equal opportunity. People made more money so they bought more goods and businesses responded and grew. We had created a virtuous cycle.

As it happens, things change; things have always changed. But the rate of change quickened and became faster than we could rationally adjust to. Automation, technology, information sharing, rapid transportation, globalization, instant communication, — these things came upon us pretty rapidly. When we did make adjustments, we sometimes made mistakes.

What changed more slowly, and almost imperceptibly, was the way public companies evolved and did business. In those olden days, a business would consider humans as resources. Not so much now.

The simplified goal of any public company is to increase revenue and decrease expenses, resulting in a better bottom line. Wall Street rates companies on how well they do this. In the post-modern era, the most proficient way to decrease expenses is to minimize labor costs. When possible-automate. When possible-use technology to dumb-down tasks so that lower-wage humans can do those tasks. We humans are not as valuable to the company as we once were. It’s not rocket-science, it’s arithmetic. In a 21st century economy, weak wages are a collateral effect of a strong Wall Street.

The dilemma comes when the company that now earns more and has a higher stock market profile now has created less able consumers to purchase their products. In effect, by keeping our companies at peak earning performance, we are killing that goose that laid the golden eggs.

The tax bill just passed by Congress exacerbates it further, it relegates 16 percent of the taxes cut to those who earn less than $75,000 annually. A big chunk of the remaining 84 percent will go to companies and people that have enormous cash reserves: like that battery on a shelf, this money won’t create much energy. Furthermore, that 16 percent number that lands on those who earn less than $75,000 diminishes over a 10-year period to zero. Since much of the justification for a tax cut is to cut spending, during that same 10 years, services that these earners depend on will also diminish, so the cost of living for those at the bottom will rise. The tax bill will further impoverish those who are already poor.

That virtuous cycle that surged the USA to the top of the world: for most wage earners, that has or will become a vicious cycle. The globalization, automation and technology, and those not-so-good decisions on how to deal with these changes, they slowly incapacitated that virtuous cycle.

The consumer is much weaker now. According to a 2017 CNBC study, the bottom 40 percent of Americans have a meager net worth of roughly $1,250 (the bottom 25 percent is under water), and more than half have less than $1000 in savings. The goose is suffering. We don’t live in a world where the big fish eats the small fish; we live in a world where the gargantuan fish try to eat all the fish. The golden egg-laying goose is left with slimmer pickings.

The new tax bill will do nothing to restore the balance: to the contrary, it will put more cash into reserve of the very wealthy. This is not chicken feed. According to S&P Global Ratings, the corporate cash reserve of U.S. companies is now roughly $1,900,000,000,000 (1.9 trillion or $5,700 for every man, woman and child in the USA). That’s a lot of batteries not creating energy.

What could anyone possibly do with shipping containers of cash? If someone has all the houses and yachts and car collections and courtyards; what else can they do with their money? It seems that some are paying lobbyists and politicians to create and push legislation so that they can continue to grow their wealth — not just in the USA but in many countries around the world. It can be a complicated scheme that comes down to a simple contest: “(S)he who dies with most money wins.” The goose has been placed in the kettle.

We the people are the keepers of a democracy. We have a pretty good idea of what doesn’t work: legislation written by corporate lobbyists to benefit, not business in general, but gargantuan business. Regulating small and medium sized companies out of profitability while enabling mega-corporations to do as they please does not make for a healthy economy.

We do know that a delicate, ever-changing balance between government and business works. It brought us to the forefront after the Second World War. If we are going to get that goose out of the kettle, if the economy is to get off the vicious cycle, we’ll need to work for a better balance. We’ll need to keep both our capitalist and socialist tendencies in check. That new balance will have to better reflect the common sense and compromises of an informed electorate, not Wall Street lobbyists.

Paul Letendre, retired from corporate life, produces and co-hosts SouthCoast Matters on TCAM TV, is online editor for South Coast Insider and Prime Times, and is chairman of the Berkley Town Democratic Committee.

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